Web3 has now been flourishing in every sector, and the finance industry has not been an exception. Although the growth of Web3 is still in a nascent stage, it has not silhouetted the prominent rise of decentralized finance, which is also known as DeFi, which is bringing readily available solutions into the centralized financial markets. This development has not been noticed yet, but the paradigm shift in the financial industry is not something that the world could ignore for quite a long time.
Decentralized finance, or DeFi, is generally known as the radical change that is brought to the conventional system of dealing with financial products, market policies, related opportunities, blockchains, and oracles. Apart from that, crypto firms and institutions are hiring for Web3-focused openings, signifying rampant growth, and studies have revealed that several crypto companies have raised more than $120 billion from investors. Corporate bonds, blockchain-originated loans, and private equity tokens have also helped in this sector’s growth in just one year. With an excellent technological platform and a large user base, DeFi has become the most optimum way for blockchain in recent times, and its value has grown from $18.7 billion to $252.46 billion by 2021 and a hike in users from 1.1 million to 4 million in just one year.
The most significant part is that DeFi products make the crypto platforms accessible, which the traditional ones cannot. Several factors are paving the way for its success, with the initial one being disbelief in the conventional banking system as it promotes more transparency and security while going hand in hand with Web3. There are a lot of different facets to financial products, yet DeFi has gained popularity due to the increasing curiosity about cryptocurrency. Moreover, DeFi systems offer access to industry professionals and institutions as well as offer lenders way more returns than conventional banking systems.
Even though most users have found it extremely rewarding, DeFi is surely facing some challenges when it comes to broadening consumer adoption. For example, DeFi’s growth was based on its solving the issue of the oracle, as blockchains were restricted from accessing external data that was required to develop such applications. With the launch of oracle networks such as Chainlink, the user base has seen a hike as they have been successful in adopting newer blockchains such as Avalanche, which promotes its growth. Another shortcoming is concerning UX, which is not feasible for many non-crypto users. There is a lot of obscurity concerning the primacy of individual blockchains and also some particular types of transactions.
DeFi, being an important component of Web3, is gaining great popularity irrespective of a few shortcomings, and thereupon is expected to have a larger room for improvement. Many new companies have started integrating their work with the opportunities that DeFi has to offer, and it is feared that companies that are late in adopting it may be left out of this bandwagon and rush because of the potential that DeFi can bring about in the organization.
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